Over the past 50 years the average value of the UK's farmland has increased by 1 per cent per annum in real terms and our latest research tracks the quarterly change in values across seven land types and eight geographies.

Average farmland values have fallen over the past three years, but there are clear signs that rate of decline is slowing. Also, there is widening disparity between pure commercial productive ground and holdings with higher amenity value. Our outlook for the next five years suggests this polarisation is likely to continue, leading to an annual increase of around 1 per cent per annum at a national level for all farmland types.

A multitude of factors contribute to the performance of farmland values yet we do not believe it is possible to isolate one variable that will materially move the needle over the long term. With the annual supply of farmland traded only equating to 0.5 per cent of the total stock present and farm earnings often only comprising part of the income return from owning agricultural land, our modelling takes into account over 30 different variables which all have the potential to influence farmland values.

Historically, agricultural commodity prices and the knock-on effect on farm earnings have driven short-term sentiment yet today we believe the uncertainty around both trade position post Brexit and what the shift from basic payments towards incentivising environmental management/enhancement will mean for farm earnings has caused a temporary divergence away from normal market drivers with speculation often overriding logic in pricing.

A weaker trade position post-Brexit and a shift away from direct agricultural subsidy once the UK Government takes on the mantel of administering support are principal factors influencing current market sentiment. Uncertainty around both topics has already curtailed demand for farmland from some potential purchases which could linger into the medium term until the future direction of travel materialises.

The illustration below outlines the key principal factors we believe are currently driving farmland values over the short term:

Further information

Visit Rural Research